Naresh Goyal's Jet Airways Is In Need of Some Navigation

Closer to home, Kapil Kaul, CEO (south Asia) for CAPA Centre for Aviation, says Etihad’s investment is surely not about turning around Jet Airways. “In all likelihood the airline will continue to make losses on domestic routes, albeit to a smaller extent,” he says. In a research report on new partnership models in the airline industry, CAPA describes Etihad’s model as an “egocentric radial” alliance. Egocentric because it is driven by the individual airlines for strategic reasons. Radial because one airline is at the hub of the traffic, being fed by a number of other carriers represented as tubes carrying passengers to the hub. By this description Jet Airways is on course to become Etihad’s widest tube.

Already, daily Jet Airways flights feed Abu Dhabi from Bangalore, Delhi, Kochi, Hyderabad and Chennai. From Mumbai there are 11 flights a week. This will expand to more cities.

Can all the blame for Jet’s decline lie at Goyal’s door? Saroj Datta, an old Jet hand and its former executive director, says the chairman has always done things his own way. The regulatory environment and taxes are not conducive to the business but, for all its expat senior management, Jet has been run like a family affair.

Goyal, a man of the 1980s and ’90s, built his airline as a full-service carrier and has been unable to deal with rapid changes in the industry. Of its 562 flights about 300 are operated by JetKonnect on domestic routes. Every quarter results show that it has been outgunned by IndiGo and SpiceJet on these routes.

Vinayak Chatterjee, chairman and managing director of advisory firm Feedback Infrastructure, used to be on the top of Jet’s frequent-flier list, earning and burning Jet Privilege miles for many years. A year ago he (and Feedback) switched to IndiGo. “Flying business class on Jet was not the same experience anymore. The airline has withdrawn many privileges and is no match for IndiGo on punctuality and cleanliness,” he says. IndiGo has been slowly but surely taking away corporate customers like Chatterjee, who form the bulk of the frequent fliers.

Goyal with Etihad’s CEO , James Hogan. Etihad has invested more than $500 million in Jet. Photo by Fotocorp

Peter Luethi was COO at Jet Airways from 2003 to 2006, when he helped start and establish the airline’s expansion into Southeast Asia and the Gulf. Luethi, who now runs an airline consultancy in the U.S., says it is difficult for one entity to operate both a full-service and an LCC airline. “To make it work the organization structure will have to change. The two must be stand-alone, independently managed entities. This would require constant control and accountability,” he says.

A Jet senior vice president said on condition of anonymity that the airline has few options–it will continue to be a hybrid airline. “The business-class market in India is underserved, and we are best suited to support it,” he says, adding that he believes the airline will eventually be able to emerge from the current situation.

Though Hogan and his team are looking at integrating the airline into their network, it is clear that revival will be the Jet management’s job. Etihad is pushing to bring in change and professionalism. Yet Goyal and Hogan have been unable to appoint a CEO who can take on the challenge of dealing with the integration and the very competitive Indian environment.

Hogan’s first suggestion, Gary Toomey, a former Air New Zealand head, left unexpectedly within six months after taking over. Acting CEO Ravishankar Gopalakrishnan has also quit. The new name doing the rounds is that of Cramer Ball, former CEO of Air Seychelles. Ball, who went to Air Seychelles from Etihad on deputation, was able to bring that tiny airline back to profitability. But analysts in India are skeptical of these choices and say Jet needs an experienced hand.

There are indeed several contradictions between what is good for Jet and what Etihad wants. Jet had built up a good market presence in Southeast Asia and on the long haul to London and beyond into the U.S. The conflict: Whether to feed its own network or funnel traffic into the Etihad network.

As the relationship deepens the two airlines may have a lot more code-shared flights. Already Jet aircraft are being leased to Etihad; some airplanes from the mideastern carrier’s huge aircraft order are likely to be for its equity partners. Pilots, too, are being shared or transferred. “Etihad is training Jet captains for conversion from smaller 737s to 777s,” says a senior check pilot from Jet. “We are being offered one-year contracts after the six-month training. The good part is we have the option of returning to Jet Airways if we don’t like it there,” she says.

Feedback’s Chatterjee says he is willing to take a contrarian bet on a strong bounce back by Jet Airways. “There is huge growth potential in the tier two and three cities in India. The government is working on improving the airport network. Jet knows this market well and should be able to tap it better now that its cash situation has improved,” he says.

Stock analysts who follow the Indian airline sector (and, significantly, many have stopped coverage of Jet) do not seem to agree with Chatterjee’s prognosis. Most are underweight on Jet Airways. In its April 2013 report on the airline, JPMorgan analyst Aditya Makhija says he expects competition to increase greatly with liberalization of the business. He estimates a loss of almost $225 million in fiscal year 2015.

For Goyal the axis of power has shifted decisively. For all his hands-on management Jet’s navigation is no longer in his hands in Dubai. Geographically it has moved just 150km south to Abu Dhabi .

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